As you know, accounting has five types of accounts (i.e. Assets, Expenses, Income, Liabilities and Capital), we debit and credit when there is increase or decrease in Assets, Expenses, Income, Liabilities and Capital.

We Debit when there is:

an increase in Assets

an increase in Expenses

a decrease in Income

a decrease in liabilities

a decrease in Capital

We Credit when there is:

a decrease in Assets

a decrease in Expenses

an increase in Income

an increase in liabilities

an Increase in Capital

Procedure of debiting and crediting accounts

Find out which are the two or more accounts involved in the transaction

Find out which type of accounts these are

Find out either there is an increase or a decrease in these accounts

EXAMPLE No.1

Transaction: Started business with cash $50,000

In this transaction:

1) There are two accounts involved Cash and Capital
2) Types of accounts are Cash=Asset and Capital=Capital or owner equity
3) There is an increase in Cash and Increase in Capital

Therefore, the double entry should be:

DESCRIPTION

DEBIT

CREDIT

Cash

$50,000

Capital

$50,000

EXAMPLE No.2

Transaction: Purchased machinery for cash $50,000

In this transaction:

1) There are two accounts involved Machinery and Cash
2) Types of accounts are Cash=Asset and Machinery=Asset
3) There is a decrease in Cash and an Increase in Machinery